Friday, March 3, 2017

ISM Services … Markit Flash Manufacturing PMI … This Isn’t the Bubble – It’s Worse … Stock Market Analysis … Trading ETFs and ETF Ranking

ISM SERVICES (Bloomberg)
“American service companies expanded in February at the fastest rate since October 2015 amid stronger orders, signaling momentum in the economy’s biggest sector. The Institute for Supply Management’s non-manufacturing index, which covers almost 90 percent of the economy, increased to 57.6 from 56.5 in January…” Story at…
My cmt: There’s has been a lot of good news on the economy recently.  It looks like too much to me since it is much more likely that the FED will begin rate hikes soon. Several hikes this year may not be good for the stock market.
“Momentum in both the U.S. manufacturing and service sectors slowed in February, according to data released Tuesday. The Markit flash U.S. manufacturing purchasing managers index fell to a seasonally adjusted reading of 54.3 from 55 in January.” Story at…
“Even though current valuation measures are not as extreme as in 1999, today’s economic underpinnings are not as robust as they were then,” he [Michael Lebowitz] wrote. “Such perspective allows for a unique quantification, a comparison of valuations and economic activity, to show that today’s P/E ratio might be more overvalued than those observed in 1999.” In this chart, Lebowitz stacks up the metrics from the years running up to the dot-com explosion versus what we’ve seen since 2012…Meanwhile, Snapchat’s surging market capitalization just surpassed that of American Airlines”
Story at…
-Friday the S&P 500 was up about 1pt to 2383.
-VIX dropped about 7% to 10.96. (Holy Bull Market Batman! I can’t explain that.)
-The yield on the 10-year Treasury rose slightly to 2.483%.
Volume was about normal relative to the monthly average.  It looked like the dip-buyers pushed after the mid-morning low, but couldn’t get too much traction.  The S&P 500 climbed all-day, but finished close to where it started. 52% of stocks advanced today; pretty close to breakeven. Advancing volume was more bullish as 58% of volume was advancing. The new-hi/new-lo data looks very bearish so we’ll see if new-hi/new-lo data continues to deteriorate.
RSI finally dropped below 80 after 9-days at 80 or above (the sell signal). It has a ways to fall before it generates a buy.
The sum of 16-indicators was zero (neutral) today and the longer trend improved. Money Trend is pointing down. The Pros are still selling based on Late-day action that has been trending down on average over the last month, but today there was late day buying.
Overall there is a bearish bent to the data, but not drastically so.  We’ll need some more time to establish a trend.  Down or Up? We’ll just have to wait.
The top ranked ETF receives 100%. The rest are then ranked based on their momentum relative to the leading ETF.  While momentum isn’t stock performance per se, momentum is closely related to stock performance. For example, over the 4-months from Oct thru mid-February 2016, the number 1 ranked Financials (XLF) outperformed the S&P 500 by nearly 20%.
*For additional background on the ETF ranking system see NTSM Page at…
I would avoid iEAFE (Europe and Far East) and SCHE (Emerging markets); currently their 120-dMAs are declining.
Recommended ETF Portfolio of top 3:
1. Financial Select Sector SPDR (XLF)
2. iShares U.S. Aerospace & Defense (ITA)
3. Technology Select Sector SPDR ETF (XLK)
XLI was slightly ahead of the XLK, but not enough to change the recommendation.  Further, if there is a correction, XLI is likely to be among the worst performers.
I have not yet established a position based on the ETF Ranking; I am waiting for a better entry point.
SHORT-TERM TRADING PORTFOLIO - 2017 (Small-% of the total portfolio)
Rydex 2x Short S&P 500 (RYTPX): Established 6 Dec.
2x Short S&P 500 (SDS): Established 16 Dec.
Long Volatility ETN (VXX): Established 6 Jan 2017.  
Now I wish I had tightened trading rules sooner. I am underwater again!
-“In a bull market, you can only be long or neutral.” – D. Gartman
-“The best policy is to avoid shorting unless a major bear market is underway and downside momentum has been thoroughly established. Even then, your timing must sometimes be perfect. In a bull market the trend is truly your friend, and trading against the grain is usually a fool's errand.” – Clif Droke.
 “There are two kinds of forecasters. Those who don’t know, and those who don’t know they don’t know.”- John Kenneth Galbraith.
Market Internals improved to Neutral on the market; both stocks advancing and advancing volume improved on a 10-day basis.
Market Internals are a decent trend-following analysis of current market action, but should not be used alone for short term trading. They are usually right, but they are often late.  They are most useful when they diverge from the Index.  In 2014, using these internals alone would have made a 9% return vs. 13% for the S&P 500 (in on Positive, out on Negative – no shorting). 
Friday, Price was positive; Sentiment Volume & VIX indicators were neutral.
I reduced stock allocation to 25% stocks in the S&P 500 Index fund (C-Fund) Wednesday, 1 March 2017 in my long-term accounts. Remainder is 75% G-Fund (Government securities). This is a conservative retiree allocation based mostly on short-term signals.